UK employment at record high but wage growth slows

Follow the author of this article

Follow the topics within this article

The employment rate in the UK is at a record high, despite concerns over Britain's forthcoming exit from the European Union, as the number of people in work continues to increase.

There were 31.81 million people in work between June and August this year. That's 106,000 more than in the previous three-month period and 560,000 more compared with a year earlier.

The employment rate, which is the proportion of people aged from 16 to 64 who are in work, reached 74.5pc, the joint highest since records began in 1971.

The number of unemployed people in the UK ticked up by 10,000 compared with the previous three months, but fell by 118,000 compared to a year ago, to an 11-year low.

The jobless rate, which is the proportion of the labour force who don't have a job but are actively seeking work, was 4.9pc, unchanged compared the previous three months, but down from 5.4pc a year ago.

The encouraging figures from the Office for National Statistics sent sterling up sharply to an eight-day high against the dollar to just above $1.23.

"Today’s release is the latest piece of evidence which shows the economy has fared better than expected since June’s referendum," he said.

"Since the vote to leave the EU, economists and commentators have been forecasting a sharp rise in unemployment as the uncertainty affects firms’ hiring decisions. The Bank of England expects a rise to 5.5pc once the full effect filters through. Yet for now, the UK labour market sails serenely on."

The annual increase in employment was broad-based, encompassing both men and women, part time and full-time work. Wage growth fell slightly to 2.3pc, although it is still outstripping inflation, which rose to 1pc in September.

UK Employment rates (aged 16 to 64)

Changes in people in employment between June to August 2015 and June to August 2016

Divided opinions and worries over wages

Despite the positive figures, several economists have pointed out that the rate of new jobs growth is slowing and raised concerns over the month-on-month increase in unemployment.

Howard Archer, chief UK and European economist at IHS Global Insight, said the statistics were "somewhat mixed".

"While employment growth was decent at 106,000 in the three months to August, this was down from 174,000 in the three months to July and 172,000 in the three months to June.

"There are signs of cracks appearing in the UK labour market, after resilience in the run-up to, and immediate aftermath, of June’s Brexit vote. Employers so far have seemingly been maintaining a wait-and-see approach, helped by the economy’s apparent resilience in the third quarter."

Mr Archer said he believed the economy and the labour market would come under increasing pressure in the next few months, particularly once the Government triggers Article 50 at the end of March, which will formally trigger exit negotiations with the EU.

"We also expect growth to slow as consumer purchasing power is increasingly squeezed," he said. "Consequently, we see the unemployment rate starting to trend up before too long and suspect that it could reach 5pc by the end of 2016, 5.6pc by the end of 2017. We see it rising further to 5.9pc by the end of 2018."

Mariano Mamertino, an economist at global job site, Indeed, said:“While the employment figures have largely taken the shock of the Brexit result in their stride, the economy is facing a more insidious threat - the prospect of shrinking real wages.

“With consumer inflation at its highest level for two years, alarm bells are ringing at Britain’s slowing pace of wage growth, which has now slipped for two months in a row.

“While average wage rises are still modest, rising prices are starting to erode workers’ purchasing power. For the two to be moving in opposite directions is an uncomfortable reminder of the painful years Britain suffered after the financial crisis. Employers’ desire to take on new staff has cooled sharply in the wake of the Brexit vote."

Michael Martins, an economist at the Institute of Directors, said: “The UK has reached full employment, so we would normally expect to see wage increases coming through.

"The service sector, which makes up 80pc of the UK’s labour force, saw wage growth increase by 2.1pc over the past three months, but this is still less than half the rate typical before the financial crash."

Regional variations

The highest employment rate in the UK was in the South East, at 78pc, while the lowest was in Northern Ireland, at 70.1pc.

The North East had the highest proportion of people out of work, at 6.8pc, while unemployment was lowest in the South East, at 3.7pc. The region with the highest proportion of people claiming unemployment benefits was in the North East, at 4.1pc, compared with just 1.3pc in the South East.

Age differences

The unemployment rate for 16 to 24 year olds was 13.7pc between June and August, lower than the 14.7pc recorded a year earlier. Since records began in 1992, the lowest youth unemployment rate was reported at 11.6pc in early 2001, while the highest rate was 22.5pc in late 2011.